Hewlett-Packard announced this morning that it will divide itself into two publicly-traded corporations, a move that shareholders and stock analysts have been demanding and predicting for years. The division of the company will be along product lines. The business server operations will be contained in the new Hewlett-Packard Enterprise, while PC and printer businesses will comprise the new HP, Inc.
The vendor said in a press release that the restructuring will "define the next generation of technology infrastructure." The reorganization will also spin out the least profitable, but largest, segment of HP's business into its own unit. HP still ranks in the top five among PC makers and is one of the largest makers of printers in the world.
Meg Whitman will be CEO and president of the Hewlett-Packard Enterprise company. Pat Russo will chair a new Hewlett-Packard Enterprise board of directors. Last month Hewlett-Packard -- the full corporation founded by Bill Hewlett and Dave Packard in 1939 -- had named Whitman as chairman of the board and CEO. By breaking up the company, Whitman will cede some control of its most competitive and popular product segments.
Dion Weisler will be the head of the new HP, Inc. as CEO and president. Whitman will chair the HP Inc. board of directors. HP said it will still meet its profit forecasts for the fiscal year that ends on Oct. 31. It also said that it "issues a fiscal 2015 non-GAAP diluted Earnings Per Share outlook of $3.83-$4.03." That is the sweetest way of forecasting a profit, using non-Generally Accepted Accounting Practices. But it's not clear if that's HP Inc. profits, or profits for Hewlett-Packard Enterprise. And the vendor said it would take all of fiscal 2015 to complete the transaction.
“The decision to separate into two market-leading companies underscores our commitment to the turnaround plan," said Whitman, who's led HP through three years of a five-year turnaround plan. "It will provide each new company with the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics, while generating long-term value for shareholders.
"In short, by transitioning now from one HP to two new companies, created out of our successful turnaround efforts, we will be in an even better position to compete in the market, support our customers and partners, and deliver maximum value to our shareholders."
But HP is retaining the Financial Services unit inside the Hewlett-Packard Enterprise corporation. It's a move the company noted will give financial advantages to customers and partners.
Hewlett-Packard Enterprise will have a unique portfolio and strong multi-year innovation roadmap across technology infrastructure, software and services to allow customers to take full advantage of the opportunities presented by cloud, big data, security and mobility in the New Style of IT. By leveraging its HP Financial Services capability, the company will be well positioned to create unique technology deployment models for customers and partners based on their specific business needs.
Additionally, the company intends for HP Financial Services to continue to provide financing and business model innovation for customers and partners of HP Inc. Customers will have the same unmatched choice of how to deploy and consume technology, and with a simpler, more nimble partner. The separation will provide additional resources, and a reduction of debt at the operating company level, to support investments across key areas of the portfolio. The separation will also allow for greater flexibility in completing the turnaround of Enterprise Services and strengthening the company's go-to-market capabilities.
"Over the past three years, we have reignited our innovation engine with breakthrough offerings for the enterprise like Apollo, Gen 9 and Moonshot servers, our 3PAR storage platform, our HP OneView management platform, our HP Helion Cloud and a host of software and services offerings in security, analytics and application transformation," continued Whitman. "Hewlett-Packard Enterprise will accelerate innovation across key next-generation areas of the portfolio."
R&D innovation has been a troubled business operation for Hewlett-Packard since the early years of this century, until Whitman announced a shift in the vendor's priorities in 2012. She named Martin Fink, the former leader of the embattled Business Critical Systems unit where those operating systems are built, to lead HP Labs. Within a year, the Labs were creating The Machine, a way forward into a new architecture for computing -- but one that could demand up to 75 percent of the Labs' resources.
It's not yet clear where HP Labs will go in the reorganization, but the Enterprise unit seems to make the most sense. Labs also contributes to product releases in the printer and PC lineups. HP mentioned the forthcoming 3D printer lineup in the breakup announcement.
HP was to have a meeting with financial analysts in just two days, but "as a result of this separation, its Oct. 8 2014 Securities Analysts Meeting has been postponed." A conference call took place at 5AM today, and is available for replay at the HP Investor Relations website.
Whitman said only a year ago that a single HP was the right approach. She said the same strategy is still the right approach, but added that breaking up the company will accelerate growth. "We now operate from a position of strength," she said, citing a strong balance sheet and returns to shareholders. The stock was nearing $40 a share in recent months, a profound rebound from prices in the teens at the lowest point of the turnaround.
After the split up, shareholders of the HPQ security will hold shares in both companies, CFO Cathie Lesjak said in the confence call. It's a move that will prompt instant investment in the new HP Inc.